Portfolio Simplification Begins
A couple weeks ago I mentioned that I was considering simplifying my financial life by putting more of my eggs into one basket. In my case, my financial “basket” is Vanguard, but I’m sure other companies (such as Fidelity, Schwab, or E-Trade) would work just as well.
Why Simplify?
First of all, why bother with simplifying? Right now my wife and I currently have six (6) different active savings accounts, two checking accounts, and mutual funds with two different companies. While that may not be unwieldy compared to some people, my wife and I are both busy graduate students. When we’re both not madly prepping a lesson, furiously grading papers, or panicking over an upcoming exam, we enjoy spending time with one another, accompanied by a bottle of red wine. Neither of us wants to worry about money management during our “downtime.”
Setups
Since I have mutual funds at Vanguard already (and I prefer them over American Funds), consolidating my finances there seems logical. This morning I decided to start transferring part of our savings to the Vanguard Prime Money Market Fund (VMMXX).
Here is our old primary setup:
As you can see, there are a number of savings account all tied to our primary checking account. The benefit of a setup like this is that I can push/pull money to whoever offers the best rate, but as we saw with FNBO, highest rates do not the best account make. 
Here is the new setup-in-progress:
In the new setup, I plan to keep a simple “emergency” fund with roughly six months living expenses. This money will quietly sit in an FDIC-insured savings account. In my case I chose E-Trade to host the emergency fund, largely due to their lightning-fast transfer speed.
Anything extra that I have will be split between various funds at Vanguard. The liquid assets will go to the Prime Money Market Fund, medium-term savings will go to non-IRA mutual funds, and long-term savings will go to our Roth IRAs.
The new plan is simple and (I hope) effective. Time will tell, and I’ll be sure to post updates.
To Close, or Not to Close?
The new setup begs the question - do I close the old savings accounts? No, I think not. I plan to leave the bare minimum required to keep the account open, which is only $1 in most cases. What I like about the new setup is that any part of the old setup can potentially exist at any given time. Let’s say that HSBC runs another promotional special at 6% APY. I can “push” new money there within a few days.
In the end, I may lose a few dollars of interest by not always chasing the highest rate, but the time I’ll save managing and updating accounts is worth it to me. Plus, my wife likes the plan. And as a wise man once told me, “Happy wife… happy life!”:-)
Useful Links:
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